Market Insider: Tuesday Look Ahead

It sure feels like a holiday on Wall Street but without the merry making.

Monday's wishy washy market ended lower, with the S&P 500 falling 1.8 percent to 871. Nadaq fell 2 percent to 1532, and the Dow lost 59 points or 0.7 percent to 8519, its lowest close since December 4.

Traders said they expect more of the same low volume trading Tuesday. "I think the rest of the week is going to be kind of like this," said Peter Costa of Eckhart and Co. "It's going to be a non event week, but the risk in a non event week is the volatility could increase because the players aren't there to be on the other side."

Housing data, consumer sentiment and the final look at third quarter GDP will make headlines in an otherwise quiet market Tuesday.

GDP is expected to come in at negative 0.6 percent, revised from its previous reading of negative 0.5 percent for the third quarter when it is reported at 8:30 a.m.. Existing home sales, reported at 10 a.m., are expected to decline 1.6 percent to 4.90 million, and new homes are expected to come in at 415,000, down 4.2 percent.

The auto industry continued to be a factor Monday, after the Bush Administration agreed to loans for General Motors and Chrysler. Credit Suisse Monday said GM's equity could be wiped out as it complies with the government restructuring targets, and it cut the target on the stock to $1. Toyota , meanwhile, showed that even the mightiest in the industry are feeling pain and it predicted a loss for the year. Standard & Poor's said it still sees bankruptcy risk for the big three even after the rescue.

Credit Un-Crunching?

Treasurys fell Monday, lifting the yield on the 10-year to 2.141 and the two-year to 0.803 percent. The Treasury saw a healthy response to its auction of $38 billion in two year notes. The yield of 0.922 was a record low, down from the last auction rate of 1.269 percent. The Treasury also sells $28 billion in five-year notes Wednesday

The credit markets continue to show signs of improvement.

MKM Partners chief economist Michael Darda pointed out in a note that the TED spread has dropped to 148 bps versus 186 a week ago and 217 bps two weeks. He also notes the two-year swap spread has dropped to 79 bps versus 103 bps a week ago and 117 bps two weeks ago. At the same time, borrowing at the Fed's discount window has dropped off.

"While this is all good news, it's important to remember that all of these credit indicators remain far from normal and that borrowing from the Fed's window remains well above what would be seen in a relaxed environment. (effectively zero). But change takes place at the margin, and at least we've been moving in the right direction in recent weeks," he wrote.

On Friday, Darda reiterated his October call to buy corporate bonds. "... with the Federal Reserve now holding rates near zero and expanding bank reserves at a apace never seen in the history of the institution, it would seem logical to extend a bit further out on the credit risk curve," he wrote. Corporate bond yields were steady to slightly wider Monday but corporates had rallied since the Fed last week cut its interest rate target to between zero and 0.25 and said it would buy all types of securities.

Oil Drill

Oil again skidded, with the February crude contract falling 6 percent to close at $39.91 as traders worry the weakening global economy is crushing demand.